Meeting the needs of a growing youth population in the Middle East

Analysis

One of the most important issues currently facing the Middle East is the changing composition of its demographic structure. A massive cohort of young people – known as a youth bulge – is challenging policy makers, with youth policy affecting security, education, the labour market and welfare programmes, among other areas. Given the relative stability and wealth of the GCC states, this is an issue that is not often associated with the region. However, handling a vast and growing young population is just as much of a challenge in the Gulf as elsewhere in the Middle East.

Youthful MENA

The situation in the MENA region as a whole is stark. It has the largest youth population in the world, with more than half of residents under the age of 25. This puts a heavy burden on regional governments. MENA also has the world’s highest youth unemployment rate, standing at 27.2% in the Middle East and 29% in North Africa, according to the World Bank. This is partly the result of an inadequate labour market to which 2.8m young job seekers are added every year. Only 19% of working-age people in MENA, for example, are employed in the formal sector. The picture in the Gulf is slightly different. The countries of the GCC are at varying stages of their demographic transitions and are experiencing diverging fertility and population growth rates. The youth bulge – the percentage of the population under the age of 25 – ranges from 25% in Qatar to 50% in Oman. In the UAE it stands at 34%, while it is 35% in Bahrain, 40% in Kuwait and 46% in Saudi Arabia.

While not all of these figures are quite as high as in certain countries in the Levant and North Africa, the substantial youth population still provides a challenge for Gulf governments. The World Economic Forum has warned that the region as a whole is facing a critical period in which the current demographic structure can either be turned into a “youth dividend” or a “youth liability”. This will depend on GCC policy makers’ ability to fulfil young people’s aspirations.

Much of the global literature on youth focuses on the potential for conflict and instability. Given the fallout from the Arab Spring and the rise of ISIS in Iraq and Syria, this remains a major concern for regional governments. However, the transition of youth into the working-age cohort also provides the opportunity for a demographic dividend, under which the number of dependents requiring public spending diminishes and the workforce providing revenues in the form of taxes increases. Unlike many developed countries, the GCC will also avoid the detrimental effects of an ageing population for several decades. Ageing populations reduce household savings rates and investment. According to some estimates, an increase of one percentage point in the old age dependency ratio leads to a decrease of 0.5-1.2 percentage points in the average savings rate. Therefore, if managed correctly, the current scenario prevailing in the Gulf could provide for strong economic growth and stability. The youth bulge is, therefore, not only a security issue, but also a socio-economic one.

Unemployment

However, so far GCC governments have had difficulties turning this potential into an actual dividend. In the last few years, youth unemployment rates have been a significant issue. Although the region has experienced strong economic growth and job creation, youth unemployment rates were more than double that of the overall unemployment rate in 2013, according to the most recent figures available from the World Bank.

For example, in Saudi Arabia, the current overall unemployment rate was 5.7%, while the youth unemployment rate was 28.7%. In the UAE, the figures were 3.8% and 9.9%, respectively. Bahrain and Oman both had youth unemployment rates over 20%, while in Kuwait it was 19.6%. Qatar was the only country in the Gulf region that had the situation completely under control, with an overall unemployment rate of 0.5% and a youth unemployment rate of just 1.5%.

This suggests that much needs to be done for regional governments to capitalise on their youth populations. The main avenues for reform lie with the education system and the labour market. In terms of the former, there are clear constraints that leave young people ill-prepared for the challenges of finding a job. A study by EY, publicised at the Jeddah Economic Forum in March 2015, found that only 29% of GCC employers feel that the education system provides students with the “requisite skills, training and attitudes for the workplace”.

This prevailing scepticism about GCC education is borne out by international studies. Every GCC country scored well below the mean maths score on the globally recognised Trends in International Mathematics and Science Study, for example.

Labour Market Issues

The other major challenge for Gulf policy makers is the structure of the labour market, with the vast majority of nationals gaining employment in the public sector. According to the IMF, 0.8m public sector jobs were created in the GCC between 2006 and 2012 (excluding the UAE, for which statistics are unavailable). Nationals filled 85% of these jobs. In the private sector, 4.3m jobs were created, of which 88% were filled by foreigners. Overall, more than 80% of private sector jobs across the region are filled by low-skilled foreigners. Moving forward, this is likely to cause a problem. According to IMF forecasts, approximately 1.2m-1.6m nationals will enter the labour market by 2019. However, in the same time period, only 600,000 new private sector jobs will be created for nationals. As such, there is likely to be a substantial shortfall, and even with current levels of public sector hiring, unemployment could increase, according to the IMF. The IMF notes, “With the working-age population in the GCC continuing to grow rapidly and the limits of public-sector employment being reached, there is a growing recognition that nationals need high-productivity, high-paying jobs in the private sector. Economic diversification is the key to enhancing non-oil sector growth and job creation for nationals.”

Initiatives & Reforms

Several countries in the region have tried to address these challenges. Saudi Arabia, which has some of the most acute issues when it comes to youth and employment, began focusing on this area as early as the year 2000 with the establishment of the Human Resource Development Fund (HRDF). The fund works to address barriers to employment and finance programmes to develop youth entrepreneurship and job training. In November 2015 it was announced that the HRDF would provide a 20% funding allocation for the new Job Creation and Combat Unemployment Commission. The new body will study policies to improve job creation and the output from education and training facilities and make recommendations to the government.

In the UAE, Abu Dhabi has also invested heavily in improving the educational environment in a bid to produce graduates well suited for private sector jobs. In 2010 the emirate introduced a new school model, for example. This includes the development of a new curriculum and new teaching methods focused on developing critical and independent thinking and problem solving skills. Qatar’s supply side reform is looking at ways to improve the labour market through business creation. Although youth unemployment in the country is the lowest in the GCC, the labour market still suffers from structural imbalances. One of the biggest deficiencies is in the growth of small and medium-sized enterprises (SMEs) and entrepreneurial activity, vital channels for young people to enter the job market. SME activity accounts for 15% of GDP. This compares to 16% in low-income country economies, 39% in middle-income countries and 51% in high-income countries. Qatar also falls behind its peers in other metrics related to entrepreneurial growth. New business entry density stood at 1.74 per 1000 working-age population in 2014, compared to a global average of 4.20, according to the World Bank. Qatar fares well for its business environment, coming 68th out of 189 economies for its business regulatory environment in 2016, according to the World Bank.

However, Qatar’s ranking on the index has fallen in recent years, and it is clear that more can be done to promote business and job creation. Silatech, a Qatar-based think tank focusing on youth, makes several recommendations in a 2015 report, including improving access to finance, strengthening corporate reporting and easing the procedures for starting a business in the country. All these moves across the region will be vital if the GCC is to meet the needs of its growing youth population in the future. While the issue is multi-faceted, touching on housing, political participation, marriage and security, it is perhaps in the fields of education and labour market reform that the greatest strides towards inclusion can be made. This will not only head off any potential instability, but, like the Asian Tigers in the 1990s, also fuel rapid and sustained economic growth moving forward.